Author: Deng Jianpeng, Professor at the Law School of Central University of Finance and Economics; Ma Wenjie, PhD student at the Law School of Central University of Finance and Economics

Source: Journal of Shandong University

Abstract: With the rapid development of crypto assets, the global regulatory paradigm is accelerating its differentiation. Developed economies represented by the European Union, the United States, the United Kingdom, and Hong Kong are actively formulating or updating relevant regulatory policies. China previously adopted a "comprehensive ban" regulatory strategy in the field of crypto assets, which temporarily curbed domestic speculation and controlled financial risks. However, in the face of the rapid evolution of the crypto asset ecosystem and international regulatory policies, prohibitive regulation is becoming increasingly impractical, and the structural conflict with the global development of crypto assets is becoming more apparent. This may stifle blockchain financial innovation and wealth effects, lead to serious inadequacies in the protection of legitimate holders' rights, and weaken China's voice in the formulation of international rules. China can, while ensuring financial security, also consider financial efficiency, re-examine the economic functions and strategic value of crypto assets, and promote the evolution of regulatory policies towards a phased "moderate opening." Specifically, it can implement classified regulation based on the risk characteristics of crypto assets, incorporate crypto asset activities into a compliance regulatory framework, and include crypto asset reserves in the national new economic development strategy, thereby occupying a commanding position in the new round of global digital financial competition and helping China move towards becoming a financial powerhouse.

In recent years, the global crypto asset market has entered a rapid development track, swiftly evolving from a marginal field to an important component of the global financial system and investment sector. Developed economies such as the United States, the European Union, the United Kingdom, Japan, Singapore, the UAE, and Hong Kong have formulated or are in the process of formulating regulatory policies for crypto assets, incorporating them into their national new economic development strategies. The EU's "Regulation on Markets in Crypto-Assets," effective in 2024, implements risk-based classified regulation for crypto assets. In 2025, the U.S. government announced the establishment of a Bitcoin strategic reserve and a U.S. digital asset reserve, and achieved formal legislation at the federal level for the "Guiding and Establishing National Innovation for U.S. Stablecoins Act" (referred to as the "GENIUS Act"), requiring stablecoins to be backed by U.S. dollars or short-term U.S. Treasury bonds. Starting in 2024, Hong Kong will implement licensing for mainstream crypto asset exchanges and practices for Bitcoin and Ethereum ETFs, and in 2025, it will pass the "Stablecoin Regulation Draft."

China's financial regulatory authorities have previously established a prohibitive regulatory framework through various administrative normative documents, such as the "Notice on Preventing Bitcoin Risks" (2013), the "Announcement on Preventing Risks of Token Issuance Financing" (2017), and the "Notice on Further Preventing and Handling Risks of Crypto Asset Trading Speculation" (2021), as well as the Supreme People's Court's Guiding Case No. 199. These documents collectively view crypto asset-related transactions as "illegal financial" activities, prohibiting the pricing of Bitcoin in fiat currency, banning Bitcoin "mining," and cracking down on the entire crypto asset industry chain. The prohibitive policies have effectively curbed domestic speculation in crypto assets and prevented related financial risks, but as the market evolves, their controversy has gradually emerged, drawing the attention of a small number of researchers. On one hand, judicial authorities, influenced by the aforementioned administrative normative documents, have shown ambiguous and fluctuating recognition of the legal attributes of crypto assets. In the absence of formal legislation denying the legality of crypto assets, there is a serious lack of civil rights protection for legitimate holders of crypto assets, with some civil cases involving crypto assets being rejected by courts on the grounds of "risk-bearing." There is a significant occurrence of "different judgments in the same case" in civil and criminal rulings. On the other hand, with the explosive growth of new crypto assets such as stablecoins in recent years, the prohibitive regulations of a single sovereign state are increasingly unable to address the challenges posed by crypto assets, failing to meet the minimal invasion effect required for financial regulation.

Especially starting in 2025, developed economies represented by the United States will incorporate crypto assets into their national new economic development strategies, re-examining and adjusting their regulatory strategies for crypto assets, and introducing specific legislation for stablecoins, aiming to gain a competitive advantage in the new round of blockchain financial "arms race." The global crypto asset industry is experiencing rapid "business model innovation" and "rule reconstruction." In this context, the structural conflict between China's prohibitive regulation and the global development of crypto assets is becoming increasingly apparent, potentially no longer conforming to the financial regulatory requirements of the "proportionality principle." This critical issue has not received sufficient attention from domestic financial regulators and legal scholars. "Law changes with time, and governance is effective when it aligns with the world." How to timely adjust China's policies in line with international trends in crypto asset development and construct a regulatory framework that balances financial security and innovative inclusiveness is a strategic issue that China urgently needs to consider. Compared to existing domestic research, this article's innovation will be reflected in two aspects: first, the material effectiveness is new, systematically sorting out the recent ecological development, innovation, and new regulatory policies of developed economies regarding crypto assets, and analyzing their trends and policy highlights. Second, it proposes clear and highly practical optimization paths for existing regulatory policies. Prohibitive regulation is essentially a continuation of "financial repression" policies, which have limitations in financial development and innovation, protection of financial consumer rights, and the formulation of international governance rules. This article will propose a policy adjustment from "comprehensive prohibition" to phased "moderate opening" from both theoretical discussion and practical paths.

I. Concept of Crypto Assets and Regulatory Needs

(A) Concept and Ecology of Crypto Assets

Currently, there is no complete consensus or classification on the concept of crypto assets internationally. Crypto assets are often mixed with concepts such as virtual currencies, private digital currencies, virtual assets, digital assets, and tokens. However, international organizations such as the Financial Stability Board (FSB), the International Monetary Fund (IMF), and the Basel Committee on Banking Supervision (BCBS) have frequently used the term "crypto assets" in recent regulatory policy recommendations and official documents. This article adopts the term "crypto assets," without distinguishing it from "virtual currencies" in China's regulatory normative documents, referring to assets such as Bitcoin, Ethereum, and Tether that are issued by non-monetary authorities, use cryptographic technology and blockchain distributed ledgers or similar technologies, and exist in digital form.

Bitcoin, born in 2009, is a typical example of a decentralized privately issued crypto asset. Bitcoin features a decentralized peer-to-peer value transfer method based on a shared public ledger (using distributed ledger technology's public blockchain) and is not backed by any asset. Its original purpose was to enable transactions between individuals without a trusted third party through the coordination of incentives among network participants, solving the "double spending" technical problem. Following the birth of Bitcoin, the crypto ecosystem rapidly expanded, attracting new market participants and forming a self-reinforcing cycle that propelled the price of crypto assets upward. Centralized exchanges played a key role in guiding capital into the crypto asset field, facilitating the exchange between crypto assets and fiat currencies. Subsequently, Ethereum was launched in 2015, with its core innovation being the introduction of smart contracts, allowing developers to deploy various decentralized applications on-chain, enabling automated transaction execution triggered by conditions, and promoting the prosperity of decentralized finance (DeFi). DeFi is a new ecosystem that provides crypto services, enhancing transparency and reducing financial intermediaries to lower costs. DeFi protocols combine various smart contracts to provide lending, borrowing, and trading services within the crypto ecosystem. Crypto asset holders can engage in DeFi transactions, lending, and other financial activities using assets like Ether. At the same time, stablecoins are a key component of DeFi, maintaining relative stability in price against the fiat currency to which they are pegged, serving as a medium of payment and transaction in the crypto ecosystem.

(B) Risks of Crypto Assets and Regulatory Motivations

The "shadow banking" functions of crypto assets and decentralized finance bear similarities to many loopholes in traditional financial markets, while also presenting new challenges to existing financial regulation. The motivations and goals for regulating the crypto market mainly include maintaining national financial security, protecting the rights and interests of financial consumers; maintaining financial market stability, and combating financial crimes such as fraud, manipulation, money laundering, and terrorist financing.

First, crypto assets challenge the fiat currency system, especially stablecoins pegged to the U.S. dollar, which may lead to the substitution of other countries' fiat currencies and accelerate the risk of cross-border capital flows. Crypto assets objectively bypass the existing fiat currency system, banking system, and third-party payment systems, establishing a new currency and payment system. The International Monetary Fund refers to this phenomenon as "cryptoisation," indicating the substitution of domestic fiat currencies by crypto assets. In other words, some investors in certain countries hold large amounts of crypto assets, and there is a phenomenon of crypto assets (mainly U.S. dollar stablecoins) substituting local currencies. These stablecoins are replacing domestic currencies and assets, circumventing exchange rate and capital control restrictions. This will reduce the monetary authority's control over liquidity in the economy, affect the transmission channels of monetary policy, weaken the effectiveness of monetary policy, and may even spread to other regulated entities or the real economy, triggering systemic risks.

Second, crypto assets can easily be used as tools for illegal activities, facing difficulties in accountability. The crypto asset ecosystem has seen the emergence of products and services that enhance anonymity, such as privacy coins, mixers, decentralized platforms and exchanges, and privacy wallets. These tools reduce the transparency of financial flows and exacerbate information confusion, facilitating risks of tax evasion, money laundering, terrorist financing, fraud, and market manipulation. Compared to traditional financial transactions, there are significant information gaps in crypto assets and decentralized finance, such as the identities, technical backgrounds, and compliance records of developers and traders often being hidden, making it difficult for users to identify their credibility or motives, significantly amplifying the risks of information asymmetry. Furthermore, the "decentralized" nature of blockchain is in stark contrast to the "centralized" structure of financial regulatory systems, making it difficult for regulation to control risks through traditional financial intermediaries. The anonymity and cross-border nature of crypto assets pose significant challenges for regulation and tracking, putting investors' funds at great risk and presenting important challenges for regulatory agencies and law enforcement.

Third, crypto assets may enhance financial risks. One of the most popular uses of crypto assets is for investment (speculation) and trading (hype). The issuance, buying, selling, exchanging, and storage markets for crypto assets, along with their related products, tools, intermediaries, applications, and technologies, have experienced explosive growth, significantly expanding both retail and institutional usage. The global range of crypto asset investors continues to broaden. According to the "2024 Crypto Wealth Report" published in collaboration with British consulting firm Henley & Partners, the crypto asset market has seen significant wealth creation and scale expansion, achieving overall growth in the number of wealthy individuals, total users, and overall market value. As of the end of June 2024, the number of global crypto asset users reached 560 million, with 172,300 holders possessing over $1 million in crypto assets. With the rapid growth in participation and scale in the crypto market, crypto assets are gradually deepening their connections with traditional finance and the real economy, raising regulatory concerns about their potential spillover effects on financial stability. The failure of key service providers in the crypto asset ecosystem (such as crypto asset exchanges) can quickly transmit risks to other parts of the ecosystem. The price volatility of crypto assets, coupled with leveraged trading, liquidity mismatches, and interconnections with the traditional financial system, can amplify systemic financial risks. These challenges and risks reinforce the necessity for global regulation of crypto assets.

II. Global Regulatory Dynamics of Crypto Assets

The rapid expansion of the crypto asset market has raised concerns about the inadequacy of financial consumer rights protection mechanisms and the impact on financial stability. Global financial regulatory agencies are accelerating the legislative process for activities related to crypto assets. In the new trend of crypto asset regulation, the regulatory practices of the following countries or regions are worthy of close attention.

(A) Core Connotations of Regulatory New Policies in Developed Economies

First, the European Union's unified legislation and risk-based classified regulation. In May 2023, the European Council voted to approve the Markets in Crypto Assets (MiCA) regulation. MiCA provides a comprehensive regulatory framework for the EU's crypto asset market. Following the idea of classified regulation, MiCA details the definition and use of crypto assets, the licensing of crypto asset issuers and service providers, the operational management of crypto asset issuers and service providers, the management of reserves and redemptions by crypto asset issuers, and anti-money laundering regulations for crypto asset trading activities. It is the most comprehensive crypto asset regulatory legislation globally to date. MiCA categorizes crypto assets into Asset-Referenced Tokens (ART), E-money Tokens (EMT), and other crypto assets, establishing differentiated regulatory rules. Notably, MiCA does not cover crypto assets that meet the conditions of other regulated instruments, such as DeFi, NFTs, and security tokens, nor does it cover central bank digital currencies (CBDCs). In terms of regulatory targets, MiCA primarily regulates the establishment and operational activities of crypto asset issuers and service providers.

Second, the United States' crypto asset promotion policies and strategic reserve plans. In March 2022, the U.S. issued an Executive Order on Ensuring Responsible Development of Digital Assets, establishing a national development strategy for digital assets at the federal level, supporting digital asset development, and positioning the U.S. as a leader in blockchain innovation and digital asset technology. The U.S. Securities and Exchange Commission (SEC) approved Bitcoin spot and Ethereum spot ETFs in 2024, attracting significant capital inflows from traditional investment institutions. In January 2025, newly elected President Trump signed an executive order to strengthen the U.S. leadership in digital financial technology, announcing the establishment of a new regulatory system for digital assets, requiring the protection of public chain access and the freedom of digital assets, and forming a presidential "Digital Asset Market Working Group" to manage the issuance and operation of U.S. digital assets. A new "Digital Asset Council" was established to prohibit the issuance of central bank digital currencies and promote legislative matters such as the research of Bitcoin strategic reserves, aiming to make the U.S. the "world capital of cryptocurrency."

In March 2025, Trump signed an executive order announcing the establishment of a Strategic Bitcoin Reserve and a U.S. Digital Asset Stockpile, incorporating approximately 200,000 confiscated Bitcoins into the national reserve, and forming a "dollar-stablecoin-crypto market" cycle by supporting dollar stablecoins (such as USDT, USDC), reinforcing the dollar's pricing position in global crypto asset trading. In July 2025, the U.S. Congress voted to pass the Guiding and Establishing National Innovation for U.S. Stablecoins Act, which will take effect after being signed by the president, establishing clear rules for the issuance, legal reserves, transparency, and regulation of dollar-backed stablecoins, thereby solidifying the mechanism linking digital stablecoins to the dollar. At the same time, the U.S. House of Representatives passed the Digital Asset Market Clarity Act of 2025 (referred to as the "CLARITY Act"). This act subdivides digital assets into digital commodities, investment contract assets, and non-commodity collectibles, clarifying disputes over crypto asset attributes and establishing a clear regulatory framework, with the CFTC responsible for the digital commodity spot market and the SEC responsible for securities issuance and anti-fraud enforcement. The U.S. government's policy line supports the compliant and innovative development of crypto assets while integrating the crypto market into the U.S. financial system, binding stablecoins to the dollar system (dollars and Treasury bonds). This act utilizes stablecoins to strengthen the dollar's position in the international monetary system, increasing global acceptance and demand for digital payments in dollars, propelling the U.S. to control the future of digital finance, and reinforcing U.S. financial dominance, which is a strategic intention that deserves high attention from China.

Third, Hong Kong's crypto asset-friendly policies. In October 2022, as an important financial opening window for China, the Hong Kong Special Administrative Region government released a policy declaration on the development of virtual assets in Hong Kong, explaining the macro policies and development direction for crypto assets in Hong Kong under the technological trends of distributed ledger technology (DLT) and Web 3.0. It also proposed principled ideas for sandbox regulation of non-fungible tokens (NFTs), green bond digital issuance, and digital Hong Kong dollars. The Financial Services and the Treasury Bureau (FSTB) of the Hong Kong Special Administrative Region government published the policy declaration on the development of virtual assets in October 2022, clarifying the regulatory vision and policy direction for virtual/digital asset activities under the principle of "same business activity, same risk, same regulation." In June 2023, the Hong Kong Special Administrative Region government established a working group to promote the development of Web3. Since 2024, Hong Kong has shifted from its previous strict regulatory trend to implement a licensing system for trading mainstream crypto assets (Bitcoin and Ethereum), with security tokens subject to the Securities and Futures Ordinance, non-security tokens included in anti-money laundering regulation, and successfully exploring the listing and trading of Bitcoin and Ethereum ETFs. In May 2025, the Legislative Council of the Hong Kong Special Administrative Region passed the Stablecoin Regulation Draft, establishing a licensing system for fiat-backed stablecoin issuers in Hong Kong, set to be implemented on August 1. In June 2025, Hong Kong released the Hong Kong Digital Asset Development Policy Declaration 2.0, proposing a "LEAP" framework with four major strategies, including optimizing laws and regulations, expanding the types of tokenized products, promoting application scenarios and cross-sector cooperation, and developing talent and partnerships, while clearly stating the regularization of government bond tokenization and promoting the tokenization of real-world assets such as precious metals, non-ferrous metals, and renewable energy, reaffirming Hong Kong's goal to become a global innovation center in the field of digital assets.

(B) Analysis of Policy Characteristics in Developed Economies

In July 2023, the Financial Stability Board (FSB) released the final report on the Global Regulatory Framework for Crypto-asset Activities, drawing on the experiences of jurisdictions in implementing international standards, proposing overall principles for regulatory recommendations: first, the "same business, same risk, same regulation" principle. If crypto asset businesses have the same economic functions as traditional financial businesses and are accompanied by the same types of financial risks, they should comply with the same regulatory requirements. Second, the flexibility principle. Regulatory authorities in various economies can apply existing laws and regulations to the crypto asset industry or formulate new laws and regulations to implement relevant regulatory recommendations. Third, the technology neutrality principle. Regulatory authorities in various economies should regulate based on the economic functions and risk characteristics of crypto asset businesses, rather than their underlying technologies. Based on these international standards, developed economies have issued relevant proposals or formal legislation regarding crypto asset-related activities, reflecting the following characteristics overall.

First, a crypto asset-friendly regulatory attitude and framework. In the early stages of crypto asset development, countries exhibited differences in regulatory policies, with varying emphases on balancing innovation and risk. However, recently, developed economies have re-examined and adjusted their regulatory strategies for crypto assets, actively guiding and creating a crypto asset-friendly regulatory attitude and framework. President Trump's attitude towards non-sovereign cryptocurrencies like Bitcoin has undergone a significant shift, moving from "Bitcoin is a scam competing with the dollar" to "Bitcoin does not pose a threat to the dollar," adopting a positive and inclusive policy towards crypto assets. The Trump administration explicitly repealed the previous Digital Assets Executive Order and the Treasury's Framework for International Engagement on Digital Assets, believing these laws suppressed innovation and undermined the U.S.'s economic freedom and global leadership in digital finance. The regulatory policies of developed economies have transitioned from fragmented rules to a systematic framework, presenting a crypto asset-friendly policy stance, attracting capital or capital accumulation by increasing policy certainty.

Second, strengthening anti-money laundering and counter-terrorism financing (AML/CFT) compliance requirements. Anti-money laundering and combating the financing of terrorism are core elements of crypto asset regulation. Regulatory agencies in developed economies typically base their standards on the Financial Action Task Force on Money Laundering (FATF), using crypto asset service providers as regulatory leverage, requiring strict implementation of anti-money laundering and counter-terrorism financing measures. In June 2019, the FATF updated Recommendation 15 and its interpretative notes, releasing Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Service Providers, applying anti-money laundering and counter-terrorism financing measures to virtual assets (VA) and virtual asset service providers (VASP). A key requirement is the "travel rule," which requires countries to ensure that the virtual asset service provider of the originator can obtain, hold, and exchange information about the remitter and payee securely and immediately during transactions, and safely transmit it to the receiving virtual asset service provider or relevant financial institution when necessary. The FATF's recommendations for anti-money laundering regulation of crypto assets are seen as a benchmark for anti-money laundering laws in various countries. Developed economies such as the U.S., EU, Japan, and Singapore are strengthening the promotion of anti-money laundering regulation for crypto assets through institutional unification and law enforcement, gradually establishing a compliance system centered on virtual asset service providers. The FATF's 2025 Special Update on the Implementation of Standards for Virtual Assets and Service Providers indicates that in the 2025 survey, 73% of the surveyed jurisdictions (85 out of 117 jurisdictions, excluding those that explicitly prohibit or plan to prohibit VASPs) passed legislation implementing the "travel rule."

Third, emphasizing risk-based classified regulation. Developed economies often refer to or follow the Financial Stability Board's principle of "same business, same risk, same regulation" for classified regulation. A common classification method is based on whether a crypto asset attempts to stabilize its value by referencing other assets, with crypto assets that have a stabilization mechanism referred to as "stablecoins" and those without a stabilization mechanism referred to as "unbacked crypto-assets." For stablecoins with a value stabilization mechanism, MiCA further divides them into two categories based on the underlying assets: Asset-Referenced Tokens (anchored to one or more fiat currencies, commodities, crypto assets, or a combination of these assets) and E-money Tokens (anchored to a single fiat currency), establishing differentiated regulatory rules. Additionally, many countries or regions actively promote the application of securities laws in the crypto asset field, distinguishing crypto assets with financial instrument characteristics (including securities) from other crypto assets. The former is sometimes referred to as "security tokens," which may be subject to the same regulations as financial instruments and securities issuers. The Swiss Financial Market Supervisory Authority (FINMA) first introduced a regulatory framework for Initial Coin Offerings (ICOs) in 2018, categorizing crypto assets into three types: payment tokens, utility tokens, and asset tokens. According to their different functions, the Swiss Financial Market Supervisory Authority defines payment tokens as "non-securities" payment methods, more akin to currency; asset tokens are defined as "securities" closely related to financial products, while utility tokens are distinguished based on whether they have additional investment purposes, applying different regulatory frameworks accordingly. Of course, these classifications are not always clear-cut. For instance, the Securities and Futures Commission (SFC) of the Hong Kong Special Administrative Region points out that the terms and characteristics of crypto assets may evolve over time, with non-security tokens potentially becoming security tokens and vice versa, and it further suggests that crypto asset service providers should "prudently" apply for licenses related to both types of assets.

III. Characteristics and Limitations of China's Prohibitive Policies

(A) Phased Evolution of Prohibitive Policies

The potential risks of crypto assets necessitate the involvement of financial regulatory authorities. China has gradually expanded the scope of prohibitive regulation, as detailed below.

The first phase is the risk warning phase. To protect public property rights and prevent money laundering risks, in December 2013, the People's Bank of China and other departments issued a notice titled "Notice on Preventing Bitcoin Risks" (Yin Fa [2013] No. 289), clarifying that Bitcoin is not currency but a specific virtual commodity. Bitcoin trading, as a commodity transaction on the internet, allows the general public the freedom to participate at their own risk. Regulatory authorities maintained a generally watchful attitude in the early stages of crypto asset development, acknowledging Bitcoin's legal property status and allowing limited on-exchange and off-exchange trading.

The second phase is the key risk rectification phase. In 2017, Initial Coin Offerings (ICOs) surged globally, with many projects raising funds by issuing tokens on Ethereum. In an ICO, initiators sell a certain token (crypto asset) to a group of investors, absorbing investors' fiat currency or mainstream crypto assets like Bitcoin. The crypto assets issued through ICOs are similar to traditional stocks or debt certificates, with holders entitled to claim specific property rights from the issuer, thus also referred to as "security tokens" and "utility tokens." However, in most cases, unregulated and unconstrained ICOs often became a means for scammers to engage in illegal financial activities. ICOs were commonly suspected of illegally absorbing public deposits or engaging in fundraising fraud, with initiators inflating token prices and then quickly selling them for profit, resulting in significant losses for token purchasers. In September 2017, the central bank and other ministries issued the "Announcement on Preventing Risks of Token Issuance and Financing," clearly stating that no organization or individual may illegally engage in token issuance and financing activities, requiring an immediate halt to all types of token issuance and financing activities, prohibiting financial payment institutions from participating in crypto asset businesses, and demanding the closure of domestic exchanges, which effectively controlled related financial risks in the short term.

The third phase is the comprehensive prohibition phase. In May 2021, the State Council's Financial Stability Development Committee held its 51st meeting, proposing to resolutely prevent and control financial risks and crack down on Bitcoin "mining" and trading activities. Subsequent regulatory policies quickly implemented the spirit of the meeting. In September 2021, the National Development and Reform Commission and other departments issued a notice titled "Notice on Rectifying Virtual Currency Mining Activities," categorizing mining activities as an industry to be eliminated, strictly prohibiting new mining projects, and strengthening strict regulation of the entire upstream and downstream industrial chain of crypto asset "mining" activities. In September 2021, the central bank and other ministries issued the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation," emphasizing that activities related to crypto assets are illegal financial activities and are strictly prohibited, with a firm commitment to lawfully ban them, including services provided by overseas exchanges to domestic residents. Notably, the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" included the Supreme People's Court, the Supreme People's Procuratorate, and the Ministry of Public Security as issuing bodies, giving financial regulatory rules significant influence in law enforcement and judicial proceedings, and clearly stating that any legal person, unincorporated organization, or individual investing in crypto assets and related derivatives that violate public order and good customs will have their related civil legal actions deemed invalid, with losses borne by them.

In February 2022, the Supreme People's Court amended the "Interpretation on Several Issues Concerning the Application of Law in the Trial of Criminal Cases of Illegal Fundraising" (Fa Shi [2022] No. 5), explicitly listing "virtual currency trading" as a method of illegally absorbing funds, providing a clear basis for judicial authorities to combat such crimes. In August 2024, the Supreme People's Court and the Supreme People's Procuratorate jointly issued the "Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Money Laundering," for the first time explicitly listing "transferring and converting criminal proceeds and their benefits through 'virtual assets' trading and financial asset exchange" as money laundering behavior.

China adopts a vigilant attitude towards the risks associated with crypto assets, characterizing them negatively, ultimately presenting a feature of prohibitive regulation. Prohibitive regulation covers three dimensions: first, a comprehensive ban at the administrative regulatory level across the entire industry chain. At the issuance level, it prohibits creating or issuing crypto assets through mining or ICOs; at the trading level, it prohibits any domestic or foreign entities from providing custody, settlement, exchange investment, information consulting, and other crypto asset services to domestic residents. Second, it connects to illegal activities at the criminal level. Based on the administrative norms that clarify the illegality of crypto asset trading activities, specific crypto asset trading behaviors are categorized as illegal fundraising, money laundering, and other criminal activities through judicial interpretations, thereby reinforcing the "illegality" of crypto asset-related trading activities and the "legitimacy" of prohibitive actions. Third, it provides no protection at the civil judicial level. The impact of prohibitive regulation permeates and spreads from administrative regulation to the judicial level, sending signals to society about the illegality of crypto asset trading and risk prevention. Regulatory authorities or judicial bodies tend to deem civil behaviors such as entrusted investment in crypto assets as invalid due to violations of public order and good customs, providing no relief or protection for related investors' losses, further enhancing the proactive effect of financial justice and strengthening the collaborative governance of financial justice and financial regulation.

(B) Limitations of China's Prohibitive Regulatory Policies

China's phased and gradual expansion of prohibitive measures around crypto assets has played an important role in combating domestic speculation, addressing illegal activities related to cryptocurrencies, and managing financial risks. However, with the rapid evolution of the crypto asset ecosystem and international regulatory trends, the limitations of prohibitive regulation have become increasingly prominent.

First, the legitimacy basis of prohibitive regulatory norms is questionable. The "Notice on Preventing Bitcoin Risks," the "Announcement on Preventing Risks of Token Issuance and Financing," and the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" constitute the normative basis for crypto asset regulation. From the perspective of the issuing entities and procedures, these documents were jointly formulated and issued by the People's Bank of China and other ministries (departments), with a relatively simple legislative process that does not meet the high standard requirements for rule-making outlined in the "Regulations on the Procedures for Formulating Rules," and thus can only serve as "normative documents below regulations" in terms of legal effect. According to Article 80 of China's Legislative Law, without provisions from laws or administrative regulations, rules cannot self-empower, cannot diminish citizens' rights and freedoms, and cannot increase their obligations. Therefore, normative documents lack the authority to directly create provisions that diminish citizens' rights or increase their obligations; otherwise, their legitimacy would be in dispute. The "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" asserts that activities related to crypto assets "suspect illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of futures business, illegal fundraising, and other illegal financial activities" should be "strictly prohibited and resolutely banned by law." In practice, the activities related to crypto assets are complex and varied, and the "one-size-fits-all" illegality and prohibition provisions of normative documents exclude the obligation to investigate and adjudicate individual cases, leading to the prohibition of some legitimate behaviors. At the same time, prohibitive provisions deprive market entities of individual freedom to participate in crypto asset trading, potentially infringing on citizens' rights and raising concerns about legitimacy.

Second, prohibitive regulation has failed to effectively protect the rights and interests of financial consumers, and may even exacerbate the protection dilemma for legitimate holders of crypto assets. Due to policy reservations and the abstract nature of the wording, the regulations in the crypto asset field are overall not systematic, stable, or clear enough, leading to divergent interpretations of regulatory policies in practice. Influenced by the strict regulatory stance, judicial authorities have cognitive biases regarding the legal attributes of crypto assets, with case rulings showing many instances of inconsistent judgments for similar cases, which can easily raise public doubts. Regarding the legal attributes of crypto assets, some courts recognize them as legally protected "virtual property," while others consider them illegal property or unlawful objects. In terms of the validity of civil legal actions involving crypto assets, there are both "validity" and "invalidity" viewpoints, especially after the issuance of the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" in 2021, where courts tend to invoke this normative document to deem entrusted investment contracts involving crypto assets as invalid for violating Article 153, Paragraph 2 of the Civil Code, which pertains to "public order and good customs." In terms of discount compensation and enforcement issues in cases involving crypto assets, some arbitration institutions support "replacing returns with fiat currency," but the key points of the Supreme People's Court's Guiding Case No. 199 indicate that the practice of compensating with fiat currency equivalent to Bitcoin violates national financial regulatory provisions and social public interests. While this judicial approach aligns with the regulatory policy direction of comprehensive prohibition of virtual currencies by administrative agencies, it is detrimental to the protection and relief of legitimate rights and interests of crypto asset investors, and may even foster social adverse selection and increase moral hazard. Currently, China's prohibitive regulatory policies have led some judicial authorities to have a cognitive tendency to associate "trading cryptocurrencies" or even "involvement with cryptocurrencies" with illegal activities, automatically linking crypto asset trading to illegal and criminal activities, which has widespread negative impacts on some legitimate holders of crypto assets in certain regions. For example, some public security agencies have confiscated individuals' crypto assets without legal basis.

In addition, cases in the field of crypto assets involve a wide range of stakeholders and high-value assets, often involving charges such as organizing and leading pyramid schemes and operating illegal gambling activities, which are classified as "forfeiture" crimes. These two factors have led to increased enforcement efforts by judicial authorities in the realm of crypto asset activities, which can easily trigger issues such as "offshore fishing" and "profit-driven law enforcement." Some public authorities have handed over large amounts of confiscated crypto assets to third-party companies for sale, raising serious issues of interest transfer. The judgment documents of the major network pyramid scheme case known as "Plus Token," hailed as the "largest fund scheme in the crypto circle," show that after the incident, investigative authorities seized 194,775 Bitcoins and 833,083 Ethereum. The defendant, Chen, applied to the public security authorities to authorize a certain technology company in Beijing to legally sell the confiscated crypto assets overseas, with all proceeds treated as restitution. The funds and profits obtained were to be confiscated and turned over to the national treasury. This handling method faces significant legitimacy and rationality issues: first, the exchange of crypto assets for fiat currency within China is considered illegal financial activity. This regulation also constrains state agencies; even if judicial departments are involved in the transaction process, its illegal nature does not change. Second, China prohibits financial institutions or related platforms from engaging in cryptocurrency-related businesses, making it impossible to find official institutions or professional organizations for entrusted custody domestically, thus forcing reliance on overseas trading platforms to handle related businesses, which does not align with the functional positioning, legal attributes, and requirements of China's public security and judicial institutions, and this method lacks effective supervision, making it prone to occupational crimes and interest transfer.

Third, prohibitive regulation stifles financial innovation in the crypto asset ecosystem and the wealth benefits for the public. While China's regulatory policies have curbed risks, they have also hindered numerous applications of blockchain technology in areas such as cross-border payments (like stablecoins), real asset tokenization (RWA), decentralized finance, and stock tokenization. Furthermore, financial institutions and technology research and development organizations, as market entities pursuing efficiency, have had to divert resources originally intended for compliant technological innovation to build offshore structures in response to policy uncertainty, potentially pushing financial innovation outside the country. In the context of global fiat currency depreciation and increasingly frequent capital controls, mainstream crypto assets have gradually become important tools for global asset allocation and personal wealth preservation. The United States has clearly established a Bitcoin and crypto asset reserve strategy, while China's prohibitive regulation casts a shadow of "illegality of the object" over crypto assets, objectively leading individuals, enterprises, and even the state to lose this important anchor asset. Citizens, market entities, and even public authorities in China face significant restrictions and severe legal obstacles in the process of holding, trading, and disposing of crypto assets, making it difficult to participate in the crypto asset market or share investment returns, facing developmental difficulties in the wave of global digital assets, which may even severely impact the wealth accumulation and financial returns of a country's citizens, and could affect national financial security.

Fourth, prohibitive regulation leads to insufficient international governance participation and weakened authority in the formulation of international rules. Many developed countries or regions have established or are preparing to establish classified regulatory frameworks for crypto assets and are actively putting them into practice. The MiCA legislation explicitly states that the EU continues to support global collaborative governance of crypto assets and crypto asset services through international organizations such as the Financial Stability Board, the Basel Committee on Banking Supervision, and the Financial Action Task Force. The UK's Financial Conduct Authority has stated the need to learn from and maintain interaction with international partners and regulatory bodies to ensure that the frameworks developed are closely aligned with international standards. The UK's Financial Conduct Authority has played a leading role in the work on crypto assets organized by the International Organization of Securities Commissions, spearheading the development of "Policy Recommendations for Crypto Assets and Digital Assets" and promoting its implementation; it has also closely collaborated with the Financial Stability Board and the Financial Action Task Force, leading a thematic peer review on the global regulatory framework for crypto asset activities.

China has been in a state of strict regulation for a long time and has participated less systematically in the formulation of international rules by organizations such as the International Organization of Securities Commissions, the Financial Stability Board, and the Financial Action Task Force, contributing little to the development of rules related to crypto assets. For example, in June 2025, the Financial Action Task Force released "Best Practices for Regulating Travel Rules," providing good practice examples that jurisdictions can consider when developing regulatory frameworks. However, China explicitly prohibits the activities of crypto assets and their service providers, making it impossible to implement travel rules and even more difficult to develop best practices for travel rules. The Financial Action Task Force also pointed out the limitations of prohibitive regulation in its "Best Practices for Regulating Travel Rules," including that "stablecoin issuers need to freeze illegal funds, but this requires regulatory cooperation from jurisdictions. Regions that do not implement travel rules (such as some prohibitive countries) cannot provide a cooperative framework," and "differences in jurisdictional implementation lead crypto asset service providers to need to individually review transactions from regions that do not implement rules (such as China), significantly increasing compliance costs and risk delays." China's prohibitive regulation may face issues of weak institutional adaptability and insufficient international coordination, with domestic regulatory documents disconnected from international regulatory trends, which may further squeeze China's discourse space in this field in the long run.

IV. Shift and Improvement of China's Regulatory Strategy

(A) Re-recognition of the Strategic Significance of Crypto Assets

Crypto assets hold significant strategic value in the construction of a financial powerhouse. In 2023, national leaders proposed the key core financial elements of "six strengths" in building a financial powerhouse—strong currency, strong central bank, strong financial institutions, strong international financial center, strong financial regulation, and strong financial talent—pointing the way for the development of finance with Chinese characteristics. Within this strategic framework, crypto assets, as an important carrier of the financial technology revolution, have strategic value in enhancing China's financial competitiveness. First, in promoting the internationalization of the Renminbi, Hong Kong's regulatory sandbox plan is testing stablecoins pegged to offshore Renminbi and other fiat currencies for cross-border payments. This innovation allows the Renminbi to bypass the traditional SWIFT system restrictions, achieving efficient circulation of "payment as settlement," enhancing the efficiency of Renminbi cross-border trade settlement, and expanding the currency's carrier function. Stablecoins pegged to the Renminbi can enhance its multiple functions as a pricing currency, payment currency, and reserve currency. Establishing an offshore Renminbi stablecoin system could attract countries along the "Belt and Road" to use it as a trade settlement and reserve asset tool, forming a technology-driven new path for Renminbi internationalization and becoming a driving force for the Renminbi to become a "strong currency."

Second, developed economies such as the United States are attempting to lead innovation in crypto assets, and China's prohibitive policies may miss the opportunity to build a financial powerhouse. Blockchain finance features "disintermediation," with developments from stablecoins to real asset tokenization (RWA) based on Web3 financial innovation models, surpassing traditional bank-dominated financial intermediation and representing a shift in future financial models, which may help foster new types of "strong financial institutions." China could consider guiding private capital to allocate crypto assets through compliant channels (such as mainstream crypto asset ETFs) in stages, indirectly expanding national strategic reserves and avoiding falling behind in the competition for "digital gold." Legalizing crypto asset trading will guide "underground finance" into the light, preventing systemic risks. There is a long-standing practical demand for crypto asset allocation among certain domestic groups, as Bitcoin has anti-inflation properties; its price often rises in response to the global fiat currency inflation rate. Similar to gold's anti-inflation asset function, Bitcoin also has advantages such as a constant supply, portability, divisibility, and independence from specific national monetary policies, leading investors to view Bitcoin as "digital gold" to hedge against fiat currency depreciation. We believe Bitcoin is "an important wealth carrier for the next generation," becoming a key accounting unit for human wealth and a foundational asset in cyberspace, potentially surpassing gold's status. However, prohibitive policies objectively lead to a lack of compliant channels for domestic trading and investment, causing domestic funds to flow out through offshore trading platforms and over-the-counter transactions via gray channels, which can easily trigger fraud, currency exchange, money laundering, and capital flight risks.

The deep integration of the global crypto asset system with the traditional financial system is becoming an inevitable trend, independent of the will of specific individuals, institutions, or countries. In the long run, the limitations and negative effects of prohibitive regulation are becoming increasingly prominent. Legalizing crypto asset trading and implementing classified regulation can help achieve transparent regulation of domestic funds, protect the rights and interests of financial consumers, and ensure tax compliance for crypto asset investments, increasing fiscal revenue and enhancing financial regulatory capacity in practice. China can re-examine the economic functions and strategic value of crypto assets, exploring a shift from "comprehensive prohibition" to "moderate openness," bringing crypto assets into a compliant development track. Rather than watching the massive investment demand and the risks that arise underground, regulatory authorities should guide it into a legal framework while ensuring financial security, monitor the flow of funds in real-time, prevent illegal financial activities, and enhance investor suitability standards.

(B) Theoretical Rethinking of Prohibitive Regulatory Policies

The comprehensive prohibition of the crypto asset-related industry is not practically feasible and does not align with considerations of interests and the principle of proportionality. Financial regulation is a public law act of public power intervening in private rights and should also be constrained by the public law principle of proportionality—legitimacy of purpose, appropriateness, necessity, and balance. In terms of regulatory objectives, crypto assets represented by stablecoins exhibit an expansion of legitimacy at the level of monetary sovereignty, making prohibitive regulation difficult to address corresponding challenges of currency substitution. Regarding the appropriateness and necessity of means, regulatory authorities can use less intrusive alternative means, such as restricting market access, to minimize infringement on private rights, while the structural conflict between prohibitive regulation and the global development of crypto assets is becoming increasingly evident. In terms of the principle of balance, prohibitive regulation may suppress inclusive finance and financial innovation, leading public authorities to excessively intervene in private rights in the name of public interest, making it difficult to achieve a balance between private rights infringement and public interest realization. As the process of opening up China's financial market accelerates, the connection between domestic and international financial institutions is deepening, leaving room for re-examination of existing policies.

Classic theories and practices of financial regulation indicate that safety, efficiency, and fairness are core values that cannot be neglected in financial regulation. In determining the value objectives of financial regulation, Professor Xing Huqiang proposed the "three-legged theorem" solution, positioning "financial safety," "financial efficiency," and "consumer protection" as the "three legs" of financial law legislation, financial regulatory objectives, and financial system reform. Professor Feng Guo further developed the "three-legged theorem," expanding "consumer protection" to "financial fairness," forming a game model of mutual checks and balances based on "financial safety," "financial efficiency," and "financial fairness." However, in the field of crypto assets in China, balancing these diverse policy objectives is particularly challenging. Overall, the risk control strategy that excessively relies on administrative prohibitions stems from an overemphasis on financial safety, severely neglecting financial efficiency, especially the protection of financial consumers' rights and interests, leading to explicit conflicts among multiple regulatory values.

Prohibitive regulation stems from the perception that crypto assets and decentralized finance (DeFi) have little practical value, leading to a significant amount of crime such as money laundering, pyramid schemes, and fraud, and posing major risks to the financial system and consumer rights. This perspective overlooks the positive functions and values of crypto assets and their ecosystems. From a positive standpoint, private crypto assets represented by Bitcoin enable peer-to-peer (P2P) transactions, allowing for direct payments, settlements, and clearances. The significant advantages of these mainstream private crypto assets lie in streamlining intermediary processes, reducing costs, enhancing efficiency, and ensuring transparency, making them important tools for hedging against the long-term depreciation risks of fiat currencies. Stablecoins are gradually becoming one of the mainstream revolutionary tools for cross-border payment settlements. Compared to traditional financial payment systems, stablecoins can achieve instant settlement between any global nodes, offering advantages such as P2P transactions, 24/7 availability, near real-time transactions, and low, transparent fees. Decentralized finance is emerging as an efficient tool for investment and financing, attempting to replicate traditional financial services and models in a decentralized manner within the crypto world. This on-chain lending model features characteristics such as permissionless access, global openness, automated execution, and transparent collateral rates. Crypto assets and their related ecosystems are not merely tools for illegal activities; they also embody characteristics of inclusive finance and promote the value of inclusive growth.

We believe that financial security, financial efficiency, and the protection of financial consumer rights are not mutually exclusive; rather, they are largely unified and mutually reinforcing. Inefficient, cost-ignoring, and innovation-stifling financial security is fragile. When financial regulatory policies can both promote innovation and effectively protect the rights of financial consumers, they can strengthen financial security. The United States, on one hand, adopts an inclusive policy, actively embracing innovations in crypto assets, leveraging stablecoins to reinforce the international dominance of the dollar, and positioning Bitcoin as a strategic reserve to make the U.S. a global hub for crypto assets. On the other hand, regulatory bodies such as the U.S. Securities and Exchange Commission (SEC) have frequently targeted blockchain financial companies like Ripple in recent years under the guise of protecting financial consumer rights, while also strengthening consumer protection through recent legislation, effectively promoting the compliant development of crypto asset institutions and safeguarding national financial security. However, under prohibitive policies, the regulatory norms and judicial rulings in the crypto asset field often reflect a trend of "public interest superiority," exacerbating the awkward situation where the legal protection of legitimate crypto asset holders cannot be matched by adequate judicial relief. The current financial regulatory paradigm is undergoing a structural shift from mere regulatory constraints to innovation empowerment. The relationship between financial innovation and financial regulation has transcended the traditional binary opposition model; the core regulatory goal is no longer solely about control but actively aligning with the trends of financial innovation development, providing substantial momentum for financial innovation through regulation. Based on this, in advancing the regulatory framework for crypto assets, it is essential to reintroduce the long-missing value dimensions of "financial efficiency" and "consumer rights protection" into policy considerations, ensuring a positive interaction among these value objectives. China can re-examine the functional value of the crypto asset ecosystem for inclusive finance and financial development, particularly considering the strategic value of mainstream crypto assets in international financial and political competition, and subsequently provide accurate legal characterization.

In terms of crypto asset development strategy, China can seek a prudent balance between promoting innovation and preventing risks, constructing a dynamic system based on risk assessment. Researchers have summarized three action routes for regulatory authorities in response to risks associated with crypto assets: Ban, Contain, and Regulate. Except for the case of a complete ban on crypto asset activities, these options are not mutually exclusive and can be used in combination. China can explore more adaptive regulatory paths while firmly adhering to the bottom line of risk prevention, achieving a balance between regulation and development. In choosing regulatory strategies, China can evolve from "comprehensive prohibition" to "moderate openness," employing a combination of containment and regulatory strategies to bring crypto assets into a compliant regulatory framework, gradually transitioning from solely developing "central bank digital currency" to a model of "coordinated development of central bank digital currency and crypto assets."

(3) Core Dimensions of Regulatory Policy Adjustment

1. The Idea of Classified Regulation

China's regulatory policies have long failed to effectively distinguish between types of crypto assets, simply adopting the vague definition of "virtual currency" and a "one-size-fits-all" ban policy. The "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" points out that Bitcoin, Ethereum, Tether, and other "virtual currencies" have key characteristics such as being non-issued by monetary authorities, using encryption technology and distributed accounts or similar technologies, and existing in digital form, thus lacking legal tender status. From the normative text, it can be seen that "virtual currency" under China's financial regulatory perspective is a complex and vast collection, encompassing not only "air coins" that lack any technical support and have become tools for fraud but also mainstream native tokens like Bitcoin and Ethereum, as well as types backed by real assets such as stablecoins pegged to the U.S. dollar, which is inconsistent with the characterization of the latter as "virtual." Different types of crypto assets have different operational mechanisms and risk profiles, necessitating differentiated treatment by regulators.

The Financial Stability Board has proposed principles such as "same business, same risk, same regulation," "flexibility principle," and "technology neutrality," guiding the consensus on classified regulation of global crypto assets. Developed economies adopt a classification regulatory approach based on asset characteristics and risk levels, implementing differentiated regulation according to the economic functions and risk characteristics of crypto assets. Therefore, China needs to identify the essential attributes of emerging businesses through functional regulation and strive to build a policy framework for classified regulation within the existing system. In terms of classification models, China can draw on the functional regulatory ideas and enforcement practices of countries such as the EU, Switzerland, and the United States to determine the applicability of existing financial regulatory norms through functional regulation. To reduce the risks of classification errors and regulatory arbitrage, the EU has issued guidelines for the classification of crypto assets that meet the definitions of securities or financial instruments. In January 2025, the U.S. Securities and Exchange Commission announced the establishment of a crypto asset working group, led by Hester Peirce, known as "Crypto Mom." In February 2025, Hester Peirce stated in a public announcement that the crypto asset working group would work in several areas, such as clarifying whether different types of cryptocurrencies fall under securities; providing legal certainty for specific crypto projects through no-action letters; exploring temporary exemptions for token issuance and simplifying registration pathways; providing compliant crypto custody solutions for investment advisors and brokers; clarifying whether crypto lending and staking are subject to securities law jurisdiction, and formulating relevant rules. China can learn from these experiences and consider feasible strategies for incorporating "security tokens" into the regulatory system, bringing more clarity to the regulatory framework for crypto assets while maintaining support for innovation. The securities regulatory authority can issue standalone regulatory regulations without breaching higher laws, adhering to the functional regulatory concept of "substance over form," placing related activities under the regulation of securities law, and flexibly applying securities legal systems for regulation. For crypto assets that meet the standards of classified regulatory rules, especially for mainstream crypto assets with strong social consensus and typical decentralized characteristics globally, their property rights attributes should be affirmed, and a more rational judicial recognition and standardized, legalized process for judicial disposal can be established through judicial interpretations or guiding cases from the Supreme People's Court.

2. Focusing Regulation on Crypto Asset Service Providers

Globally, crypto asset trading platforms have gained significant power to establish trading rules, manage trading behaviors, and resolve trading disputes due to their mastery of coding technology and service agreements with platform users, making them important leverage points for public power regulation. In the digital economy era, effective information collection lays a favorable foundation for the development of financial innovation and inclusive finance, helping to promote the robust operation of the entire financial system in a new technological environment. The information disclosure system remains a core mechanism for safeguarding the rights of financial consumers. Regulation and oversight of crypto asset service providers are crucial for data collection, effective capital flow management, and fiscal and tax policies. From international experience, countries that regulate crypto assets have focused on crypto asset service providers and established compliance obligations. Due to previous exit and prohibition policies, there are no legal crypto asset service providers within China, resulting in a lack of effective regulatory "leverage." China can orderly guide crypto asset activities and service providers into the regulatory purview, with financial regulatory authorities exploring regulatory cooperation with issuing institutions or centralized exchanges.

Overall, developed economies such as the EU, the U.S., and Hong Kong generally set market access requirements for crypto asset service providers while emphasizing customer asset protection, anti-money laundering compliance, and market manipulation prevention, particularly focusing on centralized exchanges. For example, MiCA classifies any individual or entity providing crypto asset services for commercial purposes as a crypto asset service provider, requiring them to register an office in one of the EU member states and apply for authorization from the competent authority of the member state where their office is located, implementing differentiated regulatory requirements for crypto asset service providers based on their different business scopes. In line with international practices, China's financial regulation can focus on constructing a rights and responsibilities system for crypto asset service providers, clarifying the content of platform responsibilities, such as establishing a registration and licensing system for crypto asset exchanges, brokers, and clearinghouses, implementing unified regulation of platform operations, guiding them to formulate reasonable trading rules and risk management plans within the scope of their licenses, and strictly regulating the operational behaviors of platforms.

In terms of regulatory content, addressing the money laundering and terrorism financing risks that are most likely to arise from crypto assets, international organizations such as the Financial Action Task Force (FATF) have gradually constructed a crypto asset regulatory framework centered on crypto asset service providers as obligated subjects, with the "travel rule" as an important system. Countries such as the EU, the U.S., and Singapore have advanced anti-money laundering regulation for crypto assets through institutional unification and enforcement strengthening, making progress in implementing the "travel rule" and gradually establishing a compliance system centered on crypto asset service providers. China may consider adding provisions for crypto asset service providers in the relevant implementation regulations or judicial interpretations of the Anti-Money Laundering Law, setting minimum access thresholds, internal control requirements for anti-money laundering, reporting obligations for tradable assets, and customer identity verification for different service types such as exchanges, custodians, smart contracts, and cross-chain bridges. In addition, China's regulatory authorities should actively address the challenges of cross-border enforcement and jurisdiction brought about by the global nature of crypto asset trading. China can explore strengthening the extraterritorial applicability mechanism of the Anti-Money Laundering Law based on the "effect jurisdiction" principle established in Article 12 of the law, legally regulating overseas crypto asset service platforms that provide services to Chinese entities, and moderately expanding the jurisdiction of law enforcement and judicial authorities over overseas platforms.

3. Strategic Reserves and Management of Crypto Assets

In the current wave of the digital economy sweeping the globe, the international monetary system is undergoing unprecedented changes. Dollar stablecoins, leveraging their first-mover advantage and technological innovation, have become the vehicle for the technological upgrade and power extension of the dollar system in the digital age. As digital forms of currency tools, stablecoins achieve rapid global circulation by anchoring dollar assets and relying on blockchain technology, deeply embedding themselves in cross-border payments, crypto asset trading, and emerging field investments, further consolidating the dollar's dominance in the international monetary system. The U.S., with its inclusive and technologically dominant position in the crypto asset market, has incorporated Bitcoin into its strategic reserves and constructed related trading systems, enhancing its dominance over the new international asset reserve system, while stablecoin legislation will further strengthen the international status of the dollar. Against this backdrop, China can respond by developing offshore Renminbi stablecoins and establishing a reserve and management system for crypto assets.

First, eliminate institutional barriers and promote the development of offshore Renminbi stablecoins. Fiat-collateralized stablecoins extend the influence of mainstream fiat currencies in the global digital space and enhance the sovereign power of nations in the Web3 world, making it a new arena for future international monetary and financial competition. Statistics indicate that currently, over 95% of stablecoins issued are based on the U.S. dollar and its assets, which is significantly higher than the dollar's share of about 50% in global payments and approximately 58% in global official foreign exchange reserves. It can be said that the stablecoins widely circulating in the market today are essentially tokens of digital dollars, reinforcing the dollar's core position in cross-border payments and crypto asset trading. In light of this, economists emphasize the need to explore Renminbi stablecoins to enhance the Renminbi's status in the global financial landscape and hedge against the impact of a dollar-dominated digital financial system. However, on an institutional basis, the issuance and use of Renminbi stablecoins domestically face legitimacy issues. The "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" clearly categorizes virtual currency trading (including stablecoins) as illegal financial activities and prohibits any institution from providing related services, while also including services provided by overseas exchanges to domestic residents in the illegal category. Therefore, China will need to adjust the aforementioned regulations in the future to eliminate the "legitimacy" institutional barriers for the domestic and overseas issuance and use of Renminbi stablecoins. On this basis, China can issue stablecoins based on offshore Renminbi to attract more market-oriented institutions to use them for cross-border payments and applications in commercial ecosystems, thereby enhancing the international status of the Renminbi.

Second, allow pilot explorations under regulation. Hong Kong is the largest offshore Renminbi business hub globally and has the institutional environment and market foundation to launch pilot stablecoins pegged to the Renminbi. As an international financial center, Hong Kong has unique advantages for developing offshore Renminbi stablecoins. From the perspective of financial infrastructure, Hong Kong possesses a mature legal system, an advanced financial regulatory framework, and a rich pool of financial talent. China can leverage Hong Kong's financial center status and existing institutional foundation to develop offshore Renminbi stablecoins and actively participate in the stablecoin market competition. Additionally, the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission can create a friendly atmosphere for cryptocurrency innovation and investment by promoting more supportive policies, attracting more enterprises and investors, and enhancing Hong Kong's influence in the global cryptocurrency market. The central government encourages and supports Hong Kong's development in crypto asset investment, trading, and Web3.0 technology innovation, aiming to make Hong Kong the best experimental field for the development of crypto asset trading and Renminbi stablecoins, fully summarizing its legislative and practical experiences to provide beneficial references for the moderate opening of China's mainland digital financial market in the future. After the legalization of mainstream crypto asset trading in Hong Kong, the reality is that the judicial authorities in the mainland will liquidate seized crypto assets through licensed exchanges in Hong Kong. According to current mainland regulatory policies, the compliance of this liquidation pathway remains highly controversial. If the mainland continues to uphold prohibitive policies, the regulatory differences between these two jurisdictions regarding the same financial model will lead to numerous practical legal issues and disputes, likely resulting in significant divergences in the legal attributes of crypto assets, the protection of holders' rights, and property inheritance, thereby inducing the outflow of mainland assets through crypto assets, necessitating a certain degree of policy coordination.

Third, explore the reserve and management system for crypto assets. Bitcoin, as a mainstream crypto asset, is gradually recognized as "digital gold" due to its scarcity and security, and countries that establish strategic Bitcoin reserves first will gain a strategic first-mover advantage. Globally, crypto assets represented by Bitcoin are gradually shedding their early labels as "money laundering tools" and "speculative tools," and their new asset class attributes are increasingly recognized by mainstream markets. Bitcoin is gradually transitioning from a "speculative asset" to a "strategic reserve asset," and its position in the global asset reserve system deserves high attention from China. Based on Bitcoin's strategic reserves, the U.S. may further enhance its dominance over new international asset reserves, and China needs to make substantial preparations in this regard. According to incomplete statistics, the stock of Bitcoin confiscated through judicial means in China exceeds 200,000 coins, but constrained by regulatory norms that negatively evaluate crypto assets as "illegal financial activities," these assets face long-term legal identity dilemmas and institutional barriers to disposal and liquidation. It is currently necessary to accelerate reaching a consensus on recognizing the legal attributes of mainstream crypto assets and establishing unified disposal procedures to regulate the disposal of crypto assets. China can also gradually relax the participation of qualified investors from the mainland in crypto asset trading in Hong Kong (such as Bitcoin ETFs), achieving a partial realization of "private Bitcoin strategic reserves" without significant policy adjustments. Furthermore, China can refer to the U.S. model of establishing a "strategic Bitcoin reserve," incorporating it into the foreign exchange management framework to hedge against the depreciation risk of dollar assets, thereby enhancing control over crypto assets and the bargaining chips in global financial competition. From a management perspective, centralized management by the central government is more suitable; centralized management can avoid the dispersion, arbitrariness, and potential interest transfer of local disposals, and can effectively manage and preserve the value of crypto assets through scientific and reasonable asset allocation and market operations, leveraging national-level resources and expertise.

V. Conclusion

The field of crypto assets has become a new arena for future international financial competition, playing an important role in promoting innovation and economic development, as well as enhancing international leadership. The integration of the crypto asset ecosystem with the traditional financial system has become a significant trend. Global crypto asset regulation is shifting from previously allowing "barbaric growth" to the current "rule reconstruction." In this regard, China, while adhering to the bottom line of financial security, should timely adjust prohibitive regulations, pay attention to the protection of the rights of legitimate crypto asset holders, and avoid missing revolutionary opportunities brought by new financial models due to policy lag. In the short term, China can encourage the Hong Kong Special Administrative Region government to further deepen, improve, and refine its efforts in crypto asset trading, investment, and financial innovation, assess risks, and summarize replicable experiences to explore the possibility of moderately relaxing crypto asset trading and financial innovation in the mainland. In the medium to long term, China may consider moderately adjusting the comprehensive prohibition regulations, balancing financial security, financial efficiency, and the protection of financial consumer rights through dynamic regulation, cultivating and guiding compliant crypto asset service providers domestically, and incorporating mainstream crypto asset reserves into new economic development strategies. In summary, during this critical period of building a strong financial nation, crypto assets are also one of the strategic pivot points for reshaping currency competitiveness and upgrading financial markets. A "strong international financial center" must include the pricing ability of fiat currencies against crypto assets, and a "strong currency" must encompass the technological carriers of crypto. China's development of crypto assets can consider the core connotation of "financial power," moving towards an inclusive and prudent regulatory new era in the crypto asset field, empowering the internationalization of sovereign currencies with crypto technology, preventing potential risks of crypto assets through regulatory innovation, and enhancing the competitiveness of financial markets through phased institutional openings, thereby increasing China's discourse power in rule-making in the crypto asset field, occupying a commanding height in the new round of global digital financial competition, and achieving a leap from a financial power to a financial strong nation.

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